Tim Geithner scolded Wall Street for its complaints about excess regulation in his Wall Street Journal editorial Financial Crisis Amnesia, March 1, 2012. In Forbes columnist Charles Kadlec responds in Tim Geithner Covers for Corruption on Pennsylvania Avenue, 3/5/12.
But, the culpability of those in the private sector should not be used to cover up or excuse the irresponsible behavior of those in the federal government. The self-regulatory check normally provided by markets on activities that are likely to lose money — lenders backing away — was simply blocked by the government’s intervention in the capital markets. As you must know, six top executives of Fannie Mae and Freddie Mac have been charged by the Securities and Exchange Commission with securities fraud for hiding the size of the purchases of low quality mortgages from the market.
In addition, the normal check on excessive leverage provided by unwilling lenders was overwhelmed by the perception, now validated, that Fannie Mae and Freddie Mac debt were backed by the full faith and credit of the federal government. This created a willing buyer backed by the federal government with unlimited access to credit markets and a trillion dollar budget. No wonder S&Ls and Wall Street found ways to satisfy the demand. Blaming a lack of regulation for the subsequent losses is political spin meant to cover up the greed and corruption on Pennsylvania Avenue that led to the crisis.
Tips to Scott Grannis at Calafia Beach Pundit.
As an analogy the brokerage firms were the dealers, and we were the suckers at the tables, but the government owned the casinos. Are we to blame the dealers for the customer’s losses. The big difference is that casinos are at least honest about what they do.
Fannie Mae was the center of this hurricane and it was exempt from SEC and most other regulation. It was directly supervised by Congress. It is Congress who bears the responsibility for the damage it caused. Yet we named the financial reform bill after Dodd and Frank, the two Congressional leaders most responsible for its malfeasance and the two who opposed reform the most before it was too late.
If we are not honest about the causes of this disaster how can we avoid its repeat?